Personal Income Tax

Tax rates and allowances (Table A)

As previously announced, from 6 April 2016 the Personal Allowance is increased to £11,000 and the rate at which higher rate tax becomes payable to £43,000. Basic rate taxpayers also receive a savings allowance of £1,000 (£500 for higher rate taxpayers), which will tax interest income at 0%.

The basic rate of tax remains at 20%, the higher rate at 40% and the additional rate at 45%.

The first £5,000 of taxable dividend income is taxed at a zero rate. Thereafter, dividends are taxed at 7.5% on basic rate taxpayers, 32.5% on higher rate taxpayers and 38.1% on additional rate taxpayers. With the abolition of the dividend tax credit, these changes mean that taxpayers who run their business through a limited company, taking minimum salary and maximum dividends, will pay significantly more tax on dividends in 2016/17.

Personal Allowances (PA)

In keeping with the Government’s commitment to increase the Personal Allowance to £12,500 by the end of the current Parliament, the PA will rise again to £11,500 from 6 April 2017, not £11,200 as previously announced.

The allowance is reduced by £1 for every £2 by which income exceeds £100,000. This means that individuals with income in excess of £122,000 for 2016/17 and £123,000 for 2017/18 will not receive a Personal Allowance. The abatement of the allowance triggers a high marginal rate of 60% in this range.

New allowances from April 2017

Two new allowances are introduced from 6 April 2017 – one for selling goods and services and one for income from property. The allowances are both set at £1,000. Their introduction will mean that those who make up to £1,000 a year from occasional trading, or earn up to £1,000 in property income (for example from renting their driveway) will not need to pay tax on that income or declare it to HMRC.

Higher rate threshold

The threshold rises again in 2017/18 to £45,000, being the Personal Allowance for 2017/18 of £11,500 plus a basic rate band of £33,500.